UK Economic Update – 28 November 2014

FTSE 100 closes the week lower; bucks global trend as OPEC decision weighs on oil firms

The FTSE 100 bucked the global trend this week when it closed lower at 6,722.00 on Friday after the blue chip oil sector was hit hard on Thursday by OPEC’s decision not to cut back on oil production in order to support prices.

Both Royal Dutch Shell and BP Plc fell by just over 6% ahead of the Friday close, while the OPEC decision and a profit warning saw Petrofac lose more than 30% of its value during in just five days. This was while the FTSE 100 closed 0.42% lower and the FTSE 350 closed down 0.20% lower.

Despite the weeks losses, and a weak performance from London markets year to date (FTSE 100: -0.39% & FTSE350: -0.42%), there appears to be hope forming on the horizon as expectations for outright ECB easing once into 2015 continue to build.

On this note, November inflation figures released for the euro bloc this morning added further support to the above view after another 0.1% fall left the consumer price index sitting at just 0.3%.

So far, markets have responded positively to both European disinflation and the increasing likelihood that the ECB will eventually be left with no choice but to ease aggressively. With little sign that this will change before year end, there is still scope for London markets to eek out some form of gains from 2014.   

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Second estimate GDP suggests strong growth continued in Q3; economy tracking 3.1% growth for 2014

While London equity markets fell this week, optimism among economists and economy watchers increased another notch as the second estimate for UK GDP confirmed that the economy continued to grow strongly in the previous quarter.

The official reading came in as expected at 0.7% QonQ, placing the economy on track to achieve an annualised rate of 3.1% for 2014 growth.

Economists also welcomed further signals from Mark Carney at the Inflation Report hearings during the week that interest rates could remain at current lows well into the second half of 2015, if inflation remains on a southward trajectory and wage pressures were also to remain contained.

This is good news to us as we believe it will offer further time for households to deleverage and wages to begin to recover.  We have written extensively beforehand detailing our belief that the economy is ill equipped to handle and interest rate increase at the present time. For further information here, please see our piece titled: UK Economic Update: UK Economy in a Rising Rate Environment

Looking ahead, the week in front sees another round of PMI surveys released in addition to the Chancellor’s Autumn Forecasts statement where investors will be able to gain an insight into some of the key expenditure policies likely to be detailed in next year’s budget.

FTSE 100 // 10 MINUTE INTERVALS

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BP PLC // 10 MINUTE INTERVALS

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ROYAL DUTCH SHELL PLC  // 10 MINUTE INTERVALS

SHELLNOVEMBER

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PETROFAC LTD // 10 MINUTE INTERVALS

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